WAYNE O'LEARY

The Fall of Gaucho
Capitalism

There is a phrase used to characterize the
American economic system at its least attractive: "cowboy
capitalism." It's a reference to private enterprise run rampant, an
economy in which speculative greed and what John Maynard Keynes
referred to as animal spirits rule unimpeded by public oversight and
regulation. Under cowboy capitalism, an irresponsible wild West
atmosphere prevails and anything goes; the worst impulses of the
marketplace come to the fore, encouraging a get-and-grab mentality.
The unspoken corollary is: the public interest be damned.

Although the dot-com crash and the Enron
fiasco provide evidence that America's cowboy capitalism is alive and
well in the era of globalized laissez-faire, the US has yet to
face a serious day of reckoning for its market excesses of the recent
past. However, one of our Latin American neighbors is providing an
object lesson in the ultimate costs of free-market economics carried
to the extreme. Argentina, home of the legendary gaucho, cousin to
the North American cowboy, evolved its own native version of cowboy
capitalism during the 1990s under the pressure of globalization.
Let's call it "gaucho capitalism."

Argentina was the Southern Hemisphere's most
enthusiastic and thoroughgoing convert to the conservative American
economic model that emerged from the Reagan-Bush years and matured
during the Clinton presidency -- the so-called Washington Consensus
favoring a minimal role for government (also termed "neoliberalism"
after the anti-statist classical economic liberalism of the late-19th
century). As defined by American free-marketers, neoliberalism
demanded privatization and deregulation of industry, limited
government social spending, a strong currency, a "flexible" (or cheap
and unprotected) labor force, and a trade policy that eliminated
commercial barriers in accordance with the dictates of the
International Monetary Fund (IMF) and the World Trade Organization
(WTO).

Under the leadership of President Carlos
Menem (1989-99), Argentina committed itself whole hog to
neoliberalism as the route to economic growth, even adopting a
currency reform that tied the country's peso to the dollar in an
effort to curb inflation, a decidedly "hard-money" approach
beneficial to lenders over debtors. Other policy changes included
spending and wage restraints, an open door to outside ownership of
the Argentine private economy, including its banking sector, and sale
of the country's government-owned water, oil, gas, telephone,
electric, railway, and airline companies, as well as its postal
service -- mostly to foreign investors and multinational
corporations.

These moves were supposed to place Latin
America's third largest economy on the fast track to prosperity;
instead, Argentina's 36 million people were put on the road to
poverty and chaos. Menem's free-market reforms created an investment
boom for foreign investors, but also led to stagnant wages,
double-digit unemployment, and the undermining of locally owned
business and industry. Privatization was accompanied by bribery,
scandal, and inflated subsidies; worst of all, the resultant lost
government income, combined with a need to bolster the overvalued
peso, led the Menem administration to borrow heavily from foreign
banks and later from international agencies like the IMF.

By the end of the 1990s, Argentina,
erstwhile showcase for free-market economics and globalization, was
mired in recession and billions in debt. President Fernando de la
Rua, who succeeded the discredited Carlos Menem in late 1999, offered
only a corruption-free version of neoliberalism. The hallmarks of his
brief administration were further spending cuts and a restrictive
labor-flexibility law (read: no rights or job security for workers)
demanded by IMF creditors. By the time de la Rua was driven from
office a few weeks ago by angry, demonstrating Argentineans, the
country's unemployment rate had reached 18%, and it had defaulted on
its $140 billion national debt.

Enter Eduardo Duhalde, Argentina's fifth
president in a riotous two weeks, who took office through a special
legislative selection process on Jan. 2. While Menem, the Bill
Clinton of his nominally left-of-center Peronist party, was an
economic conservative, Duhalde hails from the progressive wing of the
same party and represents its populist tradition. It may surprise
Americans to learn that party founder and namesake Juan Peron, the
dictator who ran Argentina with an iron fist from 1945 to 1955, was
nevertheless a believer in economic populism and held power largely
at the sufferance of labor unions and the country's working class,
the descomisados, or "shirtless ones."

Under Duhalde, Argentina is returning to
Peronism's regulatory and economic-nationalist roots. His first
moves, a devaluation of the currency accompanied by strict rate
controls on foreign-owned water, power, and telecom firms, are a
direct challenge to the free-market hegemony. "My commitment," the
new president has said, "is to do away with an exhausted economic
model ... and ensure a better distribution of wealth."

There is good reason for Latin Americans
(and the rest of the Third World) to reject what another hemispheric
populist, Venezuelan President Hugo Chavez, calls "savage
neoliberalism." Argentina is only the latest victim of a globalized
free market run wild. First, there was Russia's IMF-recommended
"shock therapy" conversion to capitalism in 1992, which produced 500%
inflation, a 50% poverty rate, and a descent into underdeveloped
status. Then, there was Mexico's banking crisis and near economic
collapse in 1995, which necessitated a $50 billion US bailout. Next,
there was the East-Asian "hot-money" financial crisis of 1997-98 that
nearly levelled the economies of Indonesia, Thailand, Malaysia, and
the Philippines. And, finally, there was the 1998-99 stock-market
crash and forced monetary devaluation in Brazil, which contributed
indirectly to Argentina's economic woes.

All of these good tidings were brought about
by corporate globalization in the form of international financiers
and their investment/loan guarantors at the IMF, operating with the
support and encouragement of the US government. A succession of
economically conservative administrations in Washington have
determined that the American model of neoliberalism is the proper
model for the world at large and have messianically set out to make
it so. Since the IMF relies on the US for roughly a fifth of its
funding and cedes a fifth of its executive voting power to US
representatives, it has become a ready instrument for those in this
country who would advance the neoliberal cause.

Be like us, Third World countries are
admonished, by opening your markets and letting laissez-faire
be your guiding economic philosophy. It worked here, didn't it? Well,
yes and no. Americans have prospered not because of unrestrained
free-market capitalism, but because we possess vast natural
resources, land to spare, and a large, energetic, and talented
population -- and because at crucial times we have tamed our
capitalist system and regulated it in the public interest.

America would have succeeded under almost
any form of economy. Yet, Washington's free-marketers insist on
imposing a very narrow, ideological version of American capitalism on
the developing world, and when it fails (as in Argentina), they rely
on the IMF and its austere structural-adjustment programs to "rescue"
the ne'er-do-wells -- at high debt interest, of course. Argentina has
become the first prominent victim to reject the bargain and get off
the globalization treadmill; it may not be the last.